Fears that Australia’s economy is falling into recession and a worsening short-term outlook for Wall Street weighed heavily on the ASX on Wednesday. The benchmark S&P/ASX 200 fell 214 points, or 3.6 per cent, to 5725.9 points, its lowest closing price since 8 January, 2019. The falls pushed the index into a bear market, with the decline from its peak on February 20 now exceeding 20 per cent.
Banking stocks fell throughout the day, with Commonwealth Bank dropping 6.6 per cent and NAB diving 6.3 per cent. A souring of risk appetite among investors in Asia, along with a report from ratings agency Standard and Poor’s warning about a potential recession in Australia in the first half of the year, did little to help improve sentiment towards the financial sector, which closed at seven-year lows.
The sharp declines coincided with remarks from a senior Reserve Bank of Australia official that the central bank could soon start buying government bonds to help support economic activity, a measure known as quantitative easing. The news weighed on long-term bond yields, which fell towards the record lows hit on Monday, and put bank profit margins under pressure.
The RBA deputy governor Guy Debelle told an audience in Sydney the central bank would “be operating in the bond market as necessary to keep government bond rates consistent, or the risk-free curve consistent, with our outlook for interest rates.”